15 Bookkeeping Tips for Singapore Small Businesses To Keep Clean Business Records
Bookkeeping is tedious.
We hate keeping our books. As a business owner, I am sure you agree with me.
Your time is precious. You have to worry about how to increase your sales. Or how to keep your customers satisfied. The last thing you want to do is to record your business transactions.
Bookkeeping is a necessary evil. Even though we hate it, bookkeeping is essential to all businesses.
In this article, I will show you 15 actionable bookkeeping tips. These tips will help you keep proper accounts without losing sanity.
1. Do it a little. Everyday
Consistency is the most important principle of bookkeeping. Make an effort to record your transactions every day. No exceptions.
If you push this task to year-end or month-end, it is going to be more tedious than you thought. When I help my friend look in his 10 months worth of accounting records, it took me 5 days to record everything. Then I can start my analysis.
Having electronic records also means less work and lower cost for you. If you decide to outsource your accounting to professional firms, these electronic records will be useful to them.
One way to do this is to dedicate 10 to 20 minutes of your work day. Dedicate this block of time to bookkeeping.
If you sell your things online, you can integrate your system with your accounting software. Then you will have less work to do.
Summary: Keep your accounting records everyday. Dedicate 10 to 20 minutes of your work day to record transactions.
2. Define a Chart of Account
A chart of account is a list of transactions categories. There are 5 groups of these transactions categories:
Each transaction category has a unique identifier, known as Account Code. This transaction category is also known as the ledger.
To get started in bookkeeping, it is better to have a chart of accounts to guide how can you categorise transactions.
For example, you might have a transaction category called “Revenue.” When you make a sale to Customer A, you will record this transaction under Revenue.
3. Reconcile Your Bank Statements Every Month
Your bank statements are one of the most important documents to keep. They are the only business record you can trust. The bank statements are the basis for everything else.
Let say you have started recording your transactions. At the end of the month, you realize that there is a difference between your accounting records and the bank statements.
For example, you should expect a cash of $5,600. But your bank statement shows only $5,150.
You need to find out why. This is known as bank reconciliation. Some differences are valid. You might record a cheque receipt on end of the month. But the bank might take 2 days to process them.
If there are no valid reasons, then you have to investigate. It might be due to inaccurate accounting records. Or it can be due to fraud.
Bank reconciliations are usually the simplest, but also an important process of bookkeeping.
Also, never throw your bank statements away. At least keep the softcopies. If you try to get dated bank statements, the bank charges between $30 to $40 per month.
4. Keep Your Transactions Electronically – Both Invoices and Receipts
Digital spaces can only get cheaper. But rental rates can fluctuate. Keeping physical documents not only collect dust. They are also an eyesore. You also have to make space in the office to keep these physical documents.
Not all documents need hardcopies. Especially when they do not need any signatures. Some documents, like receipts, also tend to fade after some time.
You should always think of ways to change these documents to digital format. This will make your life easier when retrieving this information.
Another thing to consider is to store these documents in cloud storage. DropBox and Google Drive are the most popular cloud storage solutions. They are also available for free for lower storage requirements.
5. Make Use of Apps and Softwares
One good thing about technology is that it makes our life easier. Bookkeeping is no exception. There are lots of software out there that can help you with bookkeeping. Two of these software/apps are:
- CamScanner: This app helps to scan and flatten your invoices so that it can be clearer.
- WaveApp: This accounting app helps you make recording expenses a breeze. It can detect the wordings of the receipts and populate the necessary fields. Best of all, it is available free of charge.
6. Record Relevant Transaction Details
Now you understand the importance and how to do bookkeeping. The next question is:
What should you record for each transaction?
You should at least record the following for every transaction:
- A unique identifier. The identifier should prefix with the type of transactions. For example, your sales can be REV001. Paying your bills can be EXP001. Date of the transaction
- Payer or payee. If you are a retail business with many small transactions, you may use a generic term to describe payer.
- Purpose of the transaction These details will be useful in future should you decide to analyse your accounts. They can help you determine the intent of these transactions.
7. Link These Transactions to Your Chart of Account
Recording transactions, unfortunately, is not enough. You have to prepare financial statements. To do that, you have to link the transactions to the chart of accounts.
How do you do that?
Remember a chart of account is a form of categorisation of your transactions. You have to classify your transactions into these categories.
Some common examples are:
- Sales receipts from customers: Revenue
- Payment to Singtel for business telephone subscription: Telephone and internet expense
- Group hospitalisation and surgical insurance: Medical expenses and insurance
- Salaries paid to your employees: Salaries, allowances and bonuses There is no hard and fast rule on which account to classify. But it should make sense. For example, you should not try to categorise a revenue as an expense.
8. Understanding Debit and Credit
A key concept about accounting is this notion of balancing. Every transaction will have a debit and credit. At the end of every financial period, total debit must equal total credit.
A debit means:
- Increasing an asset or expense account; and
- Decreasing a liability, equity or income account.
Credit is the opposite. It means:
- Increasing a liability, equity or income account; and
- Decreasing an asset or expense account. If you are using accounting software, recording transactions should be easy. The software will take care of the debit and credit for you.
But if you are using Excel, make sure that you record both debit and credit. It will be a big hassle to find the missing side of the transaction afterward.
Pro Tip: Record only one side of the transaction first. Then you create the other side in bulk during month-end closing.
9. Educate Yourself on Basic Accounting Knowledge
Being a businessman, it helps for you to understand basic accounting. With online courses so prevalent these days, you do not have to spend any money to learn accounting. You can even learn them at your comfort.
Some of the more popular courses include:
- Introduction to Financial Accounting by Wharton School, University of Pennsylvania
- Business Accounting Basics by Purdue University
- Financial Accounting Made Fun: Eliminating Your Fears by Babson College
- Introduction to Financial and Management Accounting by ACCA You do not need any certificate. You just need the knowledge. And they are available to you. Free of charge.
But, you may find certain accounting concepts in the above courses are not relevant. They use the US Generally Accepted Accounting Principles (GAAP) as the basis. In Singapore, we follow the Singapore Financial Reporting Standards (FRS).
Nevertheless, the basics are similar between the 2 accounting standards.
10. Keep Personal and Business Finances Separate
As a business owner, you should always separate your personal and business finances.
One way to think about it is that your business is a separate person. You wouldn’t ask your friend to pay your lunch or fund your holidays.
Here are some tips to separate personal and business finances:
- Pay yourself a salary. Do this even if you are the only person managing the business.
- Start a business bank account if you have not done so.
Record everything that you have paid on behalf of your businesses. At the end of the week, transfer these monies from the business to your personal account.
11. Avoid using cash to make payments
You should keep an evidence of every business transaction. Most transactions will give you a receipt. If you are like most small business owners, you will lose these receipts. There are too many for you to keep track.
An alternative way is to use credit cards to make these payments. At least the transaction will show up on your credit card statements. The same applies if you use cheques.
Alternative form of payments will help you to audit and trace the nature of these expenses.
12. Use a safe or locked cash register to safeguard cash received
Cash is still the most common form of payment for Singapore’s retail businesses. If you receive cash for your sales, you should keep these cash in a safe or a locked cash register. Separate these cash from the petty cash you keep for changes.
Then, schedule twice or thrice per week to deposit these cash to your corporate account. If possible, record the transaction details this cash are relating to.
For larger amounts, you should consider arranging for Cisco’s Cash-in-Transit services.
13. Stay on Top of Your Accounts Receivables
Some businesses make sales without collecting cash upfront. This practice is common among services industry.
When you have delivered the services, but have not collected the cash, the amounts owing are accounts receivables.
You should have the practice to check all your outstanding accounts receivables. Follow up with your customers if they are outstanding.
Cash flows are important to small businesses. Do not let outstanding accounts receivables cause a dent to your business’s cash flows.
Pro tip:If you are afraid of customer defaulting, you may consider trade credit insurance to manage your credit risk.
14. Have a unique identifier for fixed assets
Fixed assets are a pain to manage. You need to keep track of its book value and tax written-down value. You also have to take inventory of these fixed assets every year.
It would get more complicated if you bought a large quantity of the same fixed assets. For example, office desks.
When recording your fixed assets, you should have a unique identifier these assets. For example, “FA0001” for office desk location 1.
With the unique identifier, it is easier for you to update your asset’s records.
15. Setting aside funds to pay tax
You can pay your corporate income taxes by installments in Singapore.
Great business man always plans ahead. If you can estimate your taxes in advance, you will be able to set aside cash for your tax obligations.
With Tinkertax, you can estimate your tax obligations right away.
We all hate bookkeeping. But it is a necessary evil to keep your business running. All major businesses keep tracks of their transactions because it is important.
If you want your business to grow, you need to have a good accounting records. It is also easier for you to get investments and loans.
Effective bookkeeping will also instill confidence among business partners. If there is a problem in your business, you will also know it way before this problem becomes not manageable.
In this article, we show a list of 15 good bookkeeping and small business finance practices. We hope that it will help you to get started in maintaining good accounting records.